GAO: Air Force Was 'Reasonable' in Awarding B-21 Contract

 - November 6, 2016, 5:41 PM
Northrop Grumman featured a wall-sized image of the B-21 bomber at the Air Force Association conference in September.

The U.S. Air Force was “reasonable” in evaluating Northrop Grumman’s technical capability to build the B-21 bomber and properly took into account technical risks in analyzing the cost, the Government Accountability Office (GAO) found. The GAO denied Boeing’s protest of the B-21 contract award to Northrop Grumman in February; the agency released a declassified version of the decision in late October.

Following a hard-fought competition, the Air Force awarded Northrop Grumman a $21.4 billion engineering and manufacturing development (EMD) contract in October 2015 to start building the bomber, plus option pricing for five low-rate initial production (LRIP) lots of 21 post-EMD aircraft. Technical capability and cost/price were deciding factors in making the award, the GAO said.

Boeing’s protest in November 2015 alleged that the Air Force was unreasonable in assessing Northrop Grumman’s technical capability to build the bomber, and that it did not properly account for technical risks in a “cost realism” analysis of the company’s proposal. The GAO’s 52-page decision denying the protest was redacted of information the Air Force considered classified and all cost and technical capability references.

A week after the agency’s February 16 decision, Boeing announced that Chris Chadwick, who headed the company’s Defense, Space and Security business, would retire; he was succeeded as the division's president and CEO by Leanne Caret.

Both Northrop Grumman and the team of Boeing and Lockheed Martin submitted initial EMD cost proposals that were “significantly lower” than independent government estimates and thus were found to be unrealistic, the GAO said. Northrop Grumman’s proposed EMD costs “were substantially lower than Boeing’s due to Northrop’s corporate investment decisions,” the agency said. “Additionally, Northrop’s lower EMD costs were significantly driven by lower labor rates and labor escalation rates in comparison to Boeing.” Over the course of several follow-up cost discussions between the contractors and Air Force evaluators, the service issued 59 “evaluation notices” to Northrop Grumman and 38 to Boeing.

Both proposals were “rated acceptable” for technical capability. In the case of two technically acceptable offers, the Air Force in its request for proposals had established a “total evaluated price” (TEP) formula for determining best value—if the TEP of the higher priced proposal was greater than 103 percent of the TEP of the lower-priced proposal, the lower TEP would constitute best value. If the higher-priced proposal was less than 103 percent of its rival, the decision would be made based on a “total weighted price” (TWP) formula consisting of a percentage of the EMD most probable cost plus 100 percent of the LRIP price.

Since Boeing’s higher TEP was greater than 103 percent of Northrop Grumman’s lower TEP, “Northrop’s proposal was selected as the best value without consideration of the TWPs.”

In its protest, Boeing alleged that the Air Force wrongly concluded that Northrop Grumman’s proposal was acceptable in four of seven technical capability subfactors, each of which is blacked out in the document. The service also failed to consider technical risks in its EMD cost-realism analysis, “specifically, that Northrop proposed overuse of low-skill positions and unrealistically low labor rates. In this connection, Boeing asserts that Northrop’s failure to propose, and inability to recruit and retain, sufficiently high-level engineers will compound various technical risks alleged in the protest,” the GAO said.

The government watchdog agency said that Boeing failed to back up its criticism of Northrop Grumman’s proposal. “[W]hile our office addresses Boeing’s allegations on the merits in this decision, we note that Boeing’s bare assertions of ‘technical risks’ inherent in Northrop’s approach do not substantiate its allegations,” the document stated. “Boeing has failed to substantiate its initial protest allegations concerning high risks in Northrop’s design approach with technical analysis of any kind.”

On the merits, the GAO determined that the Air Force’s evaluation of Northrop Grumman’s proposal was reasonable, and that it had accounted for technical risks in its cost analysis. “Significant structural advantages in Northrop’s proposal—specifically, its labor rate advantage and decision to absorb significant company investment—also strongly impacted the outcome of this essentially low-price, technically feasible procurement, and Northrop’s significantly lower proposed prices for the LRIP phase created a near-insurmountable obstacle to Boeing’s proposal achieving best-value,” the agency stated.

Lt. Gen. Arnold Bunch, military deputy to the assistant secretary of the Air Force for acquisition, said the GAO decision to deny Boeing’s protest reaffirmed the service’s approach to the B-21 procurement, which it based on an independent assessment of cost rather than a contract value. “We thought we did a very deliberate process; this just reaffirms [that] now that it’s out for everybody to see. We felt confident all along,” he said, when asked about the decision during the Unmanned Systems Defense conference on October 26.

Bunch said the Air Force has been forthcoming in divulging details of the highly classified B-21 program. “We the Air Force have been very transparent with [Congress]. We have been very open with the GAO. We learned a lot of lessons out of the B-2 program that we didn’t share information in a timely enough manner and we’ve changed a lot of that. For the American public, we’ve actually shared a lot more than we did on the B-2 program. We’re willing to stand up to that service cost position for this critical resource for the nation.”